Two key Chinese policymakers have publicly stated their support for the rally on domestic stock markets, reinforcing our view that Beijing sees bullish A-share markets as a central plank of its new monetary policy framework.

The sum of total social financing (TSF) – the widest official measure of financing in the economy – and our estimate of underground lending totalled Rmb1,493bn in February, down 35% MoM but up 27% YoY. The rebound in formal lending suggests that the reserve requirement ratio (RRR) cut on February 4 boosted loan growth. Strong medium- and long-term lending also points to an increase in loans for infrastructure projects. Shadow finance growth, on the other hand, remained weak.

The sum of total social financing (TSF) – the widest official measure of financing in the economy – and our estimation of underground lending reached Rmb2,308bn ($369bn) in January, up 18% MoM but down 19% YoY. This was predominantly due to a slowdown in shadow financing, offsetting a rebound in formal loan growth, although comparisons are complicated by recent changes to loan and deposit classifications by China’s central bank. Informal lending activity moderated ahead of the Chinese New Year holiday.

A marked slowdown in bond issuance by local government financing vehicles since 3Q14 highlights a concerted attempt by policymakers to push through more fundamental financing reforms. However, progress is likely to be gradual.

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